China Announces National Reserves Not Tied Up In Sub-prime

The Chinese government has today been quoted in local press as saying that foreign reserves are not tied up in the US troubled sub-prime sector, in a week that has seen many other major organizations detail the extent of their exposure to the sector.

Many national reserves and investment funds around the world have been hit by problems in the market, facing possible liquidity problems as a consequence. However, today the Chinese authorities were reported to have said that their $1.3 trillion reserves were mainly in US Treasury Bonds, and were not associated with the troubled lending market.

Similarly, with stock market investment proving too risky for even most day traders the government has opted to play it safe with the bulk of the national reserve in stable long term investments.

Whilst the Chinese government had avoided investment in the sub-prime sector, many other organisations were not so lucky, with both the Bank of China and the China Construction Bank feeling the heat of exposure to the sector.

The US sub-prime sector had once been considered to be a sound investment, with high rates of return on over-inflated mortgages – constantly with the security over the property to ensure a no lose situation.

With the US sub-prime sector swelling through foreign investment, lenders became more and more lax with lending, to encompass greater risk borrowers where general prudence would warn otherwise.

After consecutive interest rate rises in the US, many already stretched mortgage holders fell into arrears, leading to rising foreclosures and lengthy proceedings to sale, leaving many lenders short of cash in the immediate period for further lending and investment.

Ultimately, the sheer scale of the situation has led to vast liquidity shortages, and cash injection rescue packages from central banks worldwide.

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